Low wage tide may turn as economy gathers momentum.

By
David T. Cook, Business correspondent of The Christian Science Monitor /
July 6, 1983

Washington

With the economy on the mend, the stage is being set for a struggle over wages. Some workers are still willing to sacrifice pay or benefits to make their employer more competitive. For example, in June Eastern Airlines pilots traded work rule and benefit concessions worth $100 million in return for an ownership stake in the airline.

And late last month workers at Wilson Foods Corporation, the nation's largest fresh pork processor, accepted a 25 percent cut in wages, to $8 an hour. Members of the United Food and Commercial Workers Union accepted the wage rollback after Wilson filed for protection under Chapter 11 of the federal bankruptcy law and repudiated its master labor agreement.

''Employees generally recognize after this recession that their future employment very much hinges on their employer's profitability and competitiveness,'' says Audrey Freedman, a labor economist with the Conference Board, a nonprofit business research group.

But other workers see the economy recovering and corporate profits rebounding and feel they have sacrificed enough. For instance, union sources say that when members of the United Automobile Workers' Chrysler Council meet in Detroit later this month, a key topic will be whether to reopen the existing contract to recoup wage and benefit concessions made when the company was on the verge of bankruptcy.

Wage behavior is crucial to the economy. Wages are roughly 75 percent of the cost of producing goods. ''So if you have a decent labor cost performance, that . . . sets a good base for inflation,'' says economist Robert Wescott of Wharton Econometric Forecasting Associates.

In addition to bolstering profits, moderate raises also improve the nation's competitive position with other nations. ''We simply can't go back to that spiral of wage rates outrunning productivity (or) we lose competitiveness,'' Commerce Secretary Malcolm Baldrige told reporters at breakfast recently.

So far this year, major wage settlements have been remarkably low. For the first year of agreements reached in January, February, and March, average wages fell 1.4 percent, the first decrease in the 15 years the government has been keeping such statistics. Adding to the decline was a steel industry settlement that included a first-year wage cut.

Over the life of all the contracts agreed to during the first quarter, wages averaged an annual increase of 2.2 percent, vs. a 5.4 percent increase the last time the contracts were negotiated.

In the next several months a variety of unions will negotiate new contracts, including workers in the communications, insurance, aerospace, and shipbuilding industries. In addition to having a direct effect on covered employees, union contracts also influence the wages of nonunion employees.

While predicting wage settlements in advance is risky, economists expect relatively modest increases for the rest of 1983 and for at least the first half of 1984.

Wharton's Mr. Wescott expects wages to rise 6.2 percent on average in 1983, while Mrs. Freedman at the Conference Board anticipates a 5 percent increase. One reason for the expected good performance is that inflation is not chewing up as much of workers' pay, thus reducing the pressure on wages.

If each worker produces more, raises are less painful for companies and for the economy. ''It is all right to have a fixed amount of wage increase if productivity goes up an equal amount,'' notes Secretary Baldrige.

In the early stages of a recovery, productivity, or output per worker, rises rapidly as factories begin to operate at more normal levels. At first, companies are often able to increase production without adding workers.

Since companies concentrated so much on cutting costs and boosting efficiency during the recession, ''we should have a very strong productivity gain, stronger than usual this year,'' Mrs. Freedman says.

Productivity should rise 3.4 percent in 1983, Wharton estimates. So taking the firm's 6.2 forecast for wage increases and subtracting a 3.4 percent gain in productivity, the result, after rounding, is a 2.7 percent increase in unit labor costs for 1983. Mrs. Freedman expects wages to rise roughly 5 percent and productivity to increase by 4 percent, for a 1 percent climb in unit labor costs.

Either outcome would be a significant improvement over the recent past. In 1980 unit labor costs rose 11.2 percent, followed by an 8.1 percent increase in 1981 and one of 7.2 percent last year, according to the Bureau of Labor Statistics.

In return for the wage increases they are likely to grant this year, companies are expected to ask for additional relaxation in work rules. Management is asking and ''unions especially at the local level are giving . . . more flexibility in using the work force,'' Mrs. Freedman notes.

''I would suspect there would be some changes in work rules'' in coming negotiations, says the AFL-CIO's Mr. Zalusky. ''They will get a lot more attention in the press than their substance warrants.''

He adds that changes will be made more difficult if companies surprise union leaders who have tried to be flexible. One such surprise was US Steel's recently announced plans to import certain products.